Unemployment, debt extend poor run of retail sales

High unemployment, increased household debt and persistently depressed consumer confidence led to a continuation of the weak retail sales trend in February.

Retail trade sales decreased 1.7% year on year this February, to R58.58bn from R59.5bn in February 2016.

The biggest negative contributor to the subdued performance came from the retailers in textiles, clothing, footwear and leather goods whose sales dropped 7.6%.

Kantar Retail consultant analyst Sébastien Delsemme said the sector was down, but retailers were using data to understand shoppers to survive in the “tough retail environment”.

Consumers were struggling to overcome cash-flow constraints and “unemployment is up as opposed to a few years ago”, said Delsemme.

“We are not predicting too much growth. It [previous growth forecasts were] based on inflation expectations under [former finance minister] Pravin Gordhan, but it is [now] difficult to say. We are expecting 3%-5% growth because of price increases,” he said.

Economists say growth forecasts have to be toned down following the retail numbers for January and February.

Retail sales growth slowed to 1.9% year on year in 2016, from 3.2% in 2015, in line with the moderation of household consumption expenditure growth to 0.8% year on year from 1.7%.

Investec economist Kamilla Kaplan said they expected household consumption expenditure growth to remain muted at 1.0% year on year in 2017, “suggesting only a mild lift” in retail sales growth.

“Consumers’ ability and willingness to spend will likely be further constrained by high unemployment, elevated existing levels of indebtedness, weak rates of credit extension to household[s] and persistently depressed consumer confidence,” Kaplan said.

FNB economist Jason Muscat said that the retail sales figures paired with Tuesday’s manufacturing results, which fell by a worse-than-expected 3.6%, pointed to a technical recession.

“February’s retail trade sales provided further support to our view that the economy has entered a technical recession.

“Unless there is a significant turnaround in the March print, the retail-trade sector will subtract meaningfully from GDP growth in [the first quarter].”

BNP Paribas economist Jeffrey Schultz said weak credit growth — “likely to be made worse by the recent sovereign downgrade, poor consumer confidence and still-elevated levels of inflation” — continued to damp consumption spending, but terms of trade were strong.